Securities regulators in Ontario and Quebec, the Autorité des marchés financiers and the Ontario Securities Commission, are seeking comments on proposed rule that seeks to protect the interests of minority security holders in certain transactions.

It introduces harmonized requirements for enhanced disclosure, independent valuations and majority of minority security holder approval for certain transactions. The proposed instrument and companion policy are being published for a 90-day comment period.

The regulators indicate that the instrument is designed to achieve three objectives: providing a single harmonized instrument governing certain transactions in both Québec and Ontario; it provides an opportunity to make minor enhancements to the existing rules; and, proposes a number of consequential amendments that would otherwise be required to reflect the new harmonized take-over bid and issuer bid regime that is being created in Ontario and Quebec.

“The instrument is primarily designed to consolidate and harmonize the requirements of Québec and Ontario governing insider bids, issuer bids, business combinations and related party transactions in a single multilateral instrument,” the regulators explain.

Among other things, the new rule modifies the definition of “related party transaction” to establish additional categories of related party transactions. “We believe that issuers that retain the services of a related party for valuable consideration or provide services to a related party should obtain the approval of minority security holders unless an exemption is otherwise available,” the AMF and OSC say by way of explanation.

The proposed instrument also includes a new prohibition against independent directors receiving a benefit that is not generally available to security holders as a consequence of a transaction. “This prohibition is intended to prohibit, for example, the payment of ‘success fees’ to independent directors in the context of the completion of a transaction. In order to safeguard the independent director review process, the prohibition still applies even if the intention to provide the benefit was not formed until after the transaction has been completed,” they add.

“In our view, the instrument will generally reduce compliance costs for market participants as two overlapping regulations with be replaced by a single instrument. While a new category of related party transactions will incrementally increase compliance costs for certain transactions, the benefit of the additional regulation is consistent with the policy objectives of the instrument and justified in relation to the cost of compliance,” the regulators explain.